At the beginning of yesterday’s QE3 press conference, Fed Chairman Ben Bernanke referred to the plight of savers. Similarly, during an August “Conversation With the Chairman,” Dr. Bernanke was asked, “What about the savers?”
Both times, Dr. Bernanke had the same response. “Obviously interest rates are very low. They are low for a good reason…our economy is still in a fragile recovery…low interest rates are….to help the economy recover [and] restore more normal levels of employment and growth in our economy.”
What if, though, you have $360,000 in savings? Retired, you depend on the return from your investment. With a 5% return, you might have gotten $18,000 annually from certificates of deposit (CDs) in addition to maybe $18,000 from social security. Each month, you would have received $3000. Now, that CD return is close to zero and your monthly income plummets.
This takes us to the baby boomers.
Every month, for the next 17 1/2 years, 10,000 baby boomers will celebrate their 65th birthday. Pew Research says boomers feel 9 years younger than their chronological age and consider 72 the threshold of old age. I wonder though, how retired boomers are feeling about QE3, especially with food and gas prices rising. (Please see the ground beef graph below. Since January, 2008, ground beef has risen from $2.73 a pound to $3.45 during July 2012.)
So when, Chairman Bernanke says that his goal is very low interest rates until 2016, you can see the tradeoff. Lower interest rates are supposed to target the corporate borrowing that creates more jobs, fuels expansion, elevates tax revenue and buoys stock prices. But many senior savers pay the cost.
Sources and Resources: Talking about the plight of savers, the NY Times, here and USA Today, here do a good job of conveying the cost of QE3. To see how Dr. Bernanke commented, here is a WSJ blog and his ‘Conversation With the Chairman” talk. Finally, the Bureau of Labor Statistics (BLS) was my source for price information while here is Pew Research data on baby boomers.
The Price Per Pound of Ground Chuck Beef, January 2002-January 2012